Fines fail to move cartel members

Bread, after all, is a commodity. The only real difference between Albany, Blue Ribbon, Sunbake and Sasko is the bag holding the loaf. Customers will readily switch to a cheaper brand.

The 'pros'

The four companies the Competition Tribunal slated this week for running bread cartels across the length and breadth of the country were pros at it.

Tiger Brands, Premier Foods, Foodcorp and Pioneer Foods control as much as 60% of SA's bread market — almost 2,8-billion loaves in 2008, according to industry figures — and from as early as 1999 began carving up markets across SA. They later co-ordinated price rises and the dates of increases, pledging not to poach each other's customers or allow customers to switch suppliers to benefit from rivals' cheaper bread. In December 2006 they raised prices in the Western Cape together.

It made them money. Pioneer's Sasko alone made an extra 11c a loaf from a 35c increase it co-ordinated in December 2006 with Tiger and Premier in Gauteng.

Rotten to the core

“What we see ... is a culture of co-operation so entrenched in the daily operations of these four companies that their employees, in full knowledge of the unlawfulness of these arrangements, had no difficulty reproducing it at all levels,” the tribunal's judgment on Pioneer says.

Paarl-based Pioneer felt the tribunal's criticism hardest on Wednesday, being fined a whopping R195,7m. This followed penalties of R98,8m for Tiger in November 2007 and R45,4m for Foodcorp in January last year for their roles in the cartel. Both cut deals in exchange for giving information, like Premier, the first to co-operate with the Competition Commission, getting away with no fine.

Still, there seems to be little genuine contrition. The national carve up of markets still exists, the tribunal asserts, despite the “repugnant” nature of an offence that harms “the poorest of the poor, for whom bread is a staple”.

Bread, lies and videotape

So, how should a company's board respond to this behaviour? Pioneer's obstructionist stance — it fought the accusations and lied to protect itself — came from up high, the tribunal charges.

“Successive layers of Pioneer's management, reaching up to (Pioneer's chief witness, Sasko GM Andries) Goosen at least, were involved in concocting these elaborate falsehoods,” it says.

Off with their heads

Heads should roll at board level for this conduct, according to one competition lawyer. “In a public company, with this judgment, the entire board should be resigning.”

There is some precedent. Tiger Brands CEO Nick Dennis resigned, albeit three weeks after the company was fined for its part in the bread cartel. He denied any knowledge of his underlings' activities, but chairman Lex van Vught said Dennis “took a principled stance”.

Pioneer shows little contrition. The company, which did not respond publicly on Wednesday, again declined to comment, but indicated it would fight, rather than accept, the judgment. This applied particularly to the characterisation of Goosen as a liar.

“There's a sinister portrayal and the defence will have to assess whether they feel comfortable with that assessment. We won't hold back,” a source close to the company said.

Source: Business Day